Business processes become more flexible, adding both value and headache to the company’s owners. The hiring process is no exception. With the goal of decreasing the risks of software development outsourcing, tech companies face other difficulties when they need to hire great talent with relevant expertise.
Should you hire a full-time employee or partner with an independent contractor? This article draws a line between these business models for you to make a case-tailored choice for your project. Let’s proceed with the details.
Independent contractor vs employee – who are these two and what’s the difference?
Global hiring, remote work and the rise of freelance services created diverse opportunities for leveraging the best tech talent. However, sometimes defining legal relations and obligations of two parties of the contract becomes challenging, while such misqualification can be pretty risky for the business.
So, before deciding whether you should hire an independent contractor vs an employee, let’s understand who they are and what factors distinguish an employee from an independent contractor.
- An employee is an appropriately skilled specialist hired by the organization on a full-time basis to perform a clearly defined set of tasks according to a pre-discussed schedule, using the company’s equipment and other resources, in exchange for a fixed salary. An employer, in turn, should be compliant with local labor legislation and pay taxes deducted from the employee’s salary.
- But who is an independent contractor? An independent contractor is a self-employed person who provides services to a company according to the pre-signed contract which also establishes the terms and quality of results delivery. An independent contractor gets paid either depending on their hourly rate or the amount of tangible results being delivered. Contractors are also responsible for paying taxes on their own.
Key differences between an independent contractor and an employee
For your convenience, here’s a table that explains what differs contractors from in-house employees.
|The relationships between an employee and an employer are regulated by labor law.
|The relationship between an independent contractor and a company is regulated by civil law.
|An employee usually has enough competencies and knowledge to meet job requirements.
|Usually, an independent contractor has narrow and specific expertise.
|An employee performs everyday tasks necessary to support business operations.
|An independent contractor performs project-based and specific tasks.
|An employee receives a fixed salary per month.
|An income of an independent contractor depends on the amount of work done and is usually calculated according to the hourly rate.
|Taxes are paid by an employer and are deducted from the employee’s salary.
|An independent contractor pays taxes from their income on their own.
|An employee usually has a fixed schedule (with reasonable flexibility opportunities).
|An independent contractor works according to their own schedule, while the results delivery according to the deadline comes first.
|Degree of control
|The company may control the ways an employee does their job (within a reasonable limit).
|A company doesn’t control the ways an independent contractor provides their services.
|An employee uses the resources and equipment of the company.
|An independent contractor uses their own resources and equipment.
After the difference in legal relations is clear, let’s analyze the benefits of an independent contractor vs an employee, along with the possible drawbacks.
Pros and cons of hiring an employee
- Better control. Both remote and in-house employees are easier to control compared to an independent contractor thanks to daily reports and standups.
- Higher level of commitment. Full-time employees usually work for only one employer, so in the case of great corporate culture, employees are committed and loyal to the company.
- Higher cost compared to a contractor. Paying a monthly salary to a full-time employee including taxes is much more than hiring an independent contractor for a temporary job.
- More paperwork. Hiring a full-time employee requires more paperwork to stay compliant with labor legislation.
Pros and cons of hiring an independent contractor
- Lower overhead costs. Since an independent contractor uses their own equipment and is paid based on the hourly rate, the cost to work with them is usually lower than full-time employee compensation. However, sometimes the price for services of narrow-skilled independent contractors may also cost a fortune.
- Flexibility. Working with an independent contractor provides more flexibility compared to an in-house employee. For example, you can terminate the contract if you don’t need their services anymore or extend it, retaining your contractor for the next project.
- Data leakage. While this risk is relevant for both employees and independent contractors, in the case of employees, you can rely on their loyalty.
- Retention and commitment. Independent contractors don’t treat the companies as their workplaces. Instead, they treat them just as the other party of the contract, so it can be difficult to retain them on your project or make them commit beyond their contract.
So, both independent contractor and employee have their pros and cons. Hiring full-time employees promises more loyalty and commitment in the long run. Partnering with an independent contractor, in turn, provides you with more flexibility, choice and speed.
How to work with an independent contractor vs an employee in the most effective way
Given the pros and cons of both independent contractors and employees, let’s find out how to work with each of them so that each of the models becomes winning for your project.
Quick tips on how to work with an independent contractor
- Use a written agreement. Since the relationship between a company and a contractor is regulated by civil law, you need to sign an agreement. While it can also be oral, it is still better to write down the terms and conditions of the cooperation, fixing the hourly rate of the contractor, their obligations, responsibilities and the requirements for the quality of the final results. Some of the companies also require a contractor not to work with their competitors during the contract’s term. In addition to a contract, always sign an NDA (Non-Disclosure Agreement) to protect your business data.
- Don’t treat a contractor like an employee. Keep in mind that you can’t require from an independent contractor more than established by the contract. The viral capture below demonstrates such an expectation vs reality mismatch.
- Let a contractor do their job, but make sure the results deliverables are compliant with the contract. Working with an independent contractor requires management and communication skills despite the fact that they are doing their job on their own. So, don’t try to control an independent contractor workflow but always control the quality of the results delivered.
Quick tips how to work with an employee
- Encourage freedom, but still keep things under control. Modern developers appreciate flexibility, freedom and the opportunity to express their opinion. Let them do that. But don’t forget that you have the right to require them to stay compliant with their job contract as well.
- Build employee loyalty. One of the best things you can do to ensure employee retention and commitment for a long time is to build loyalty. But of course, it is easier said than done. Develop corporate culture, have transparent and clear communication, strive for creating a non-toxic work environment and make your employees feel appreciated with little perks, gifts, events and so on.
- Provide growth opportunities. In addition to flexibility and freedom, career development opportunities are also important for modern tech talent. So, implement performance review practices and promote your best employees to higher positions.
Still not sure whether you need an employee or independent contractor? Here’s a checklist
So, below is the checklist that will help you decide whether you need to hire an independent contractor or an employee.
Looking to hire in-house employees or contractors? Bridge can help!
Both independent contractors and full-time employees can bring a lot of value to the table. However, making the right hiring decision is as important as deciding on the type of engagement you need for your project. Both of the tasks can be pretty challenging, and as we have clarified the difference between employees and independent contractors, let’s find out how to hire them.
In our recent articles, we have discussed how to source technical candidates, how to build a high-performance engineering team and how to hire the right employees for a startup. It all sounds great when you read about it, but becomes very difficult when it comes to practice, and this is just the point where Bridge can help you.
We are a tech talent sourcing company with great hiring expertise, tech-savvy recruiters and advanced hiring technology onboard. This strong combination allows us to hire both full-time employees and independent contractors faster and smarter.
Hire full-time employees with sourcing-as-a-service
Our sourcing-as-a-service stands for a tech-enabled and 80% automated process of making the first-rated developers with your job requirements. Our data-driven engine is fueled by a huge data array with millions of data points and additional filters for the developer’s location, qualification, experience and skills, allowing us to find the finest-tuned candidates among millions of CVs.
This is just the reason why our customers apply for sourcing-as-a-service to close multiple positions in parallel, reducing the hiring cost by up to 60%. The only thing you have to do is to interview the suggested candidates, choose the best ones and proceed with hiring and onboarding.
Meet the top-relevant candidates for your job position in several days with our sourcing-as-a-service!
Hire independent contractors with team augmentation services
If you feel like hiring independent contractors would be a better option for your project, consider our team augmentation service. We will help you find the right programming contractors with a proven success track, relevant experience, up-to-date development skills and strong tech expertise so they can extend and strengthen your in-house team.
What’s more, your augmented team will be fully managed and controlled by you. You will be able to communicate with your developers directly, while we’ll take care of payroll and taxes.
Empower your team with the best programming hands and minds. Get in touch with us right now!